The Internal Revenue Service (“IRS”) issued a Notice of Proposed Rulemaking (“Notice”) which proposes a new user fee to receive IRS Letter 627 – the Estate Tax Closing Letter (the “Letter”). A Letter is necessary to not only clear title for real estate, to close a probate, to confirm no further estate taxes are owed, but also to determine proper distributions, etc.
Prior to June 2015, a Letter was routinely issued for every filed estate tax return. While not required under the Internal Revenue Code, the Notice states that “the practice is fundamentally a customer service convenience offered to authorized persons in view of the unique nature of estate tax return filings and the bearing of an estate’s Federal estate tax obligations on the obligation to administer and close a probate estate…”
In 2015, filed estate tax returns increased substantially because of the requirement to file estate tax returns to elect portability. Because of the volume of estate tax return filings and additional budget and resource constraints, in June 2015, the IRS continued the practice of issuing Letters but only upon request of an authorized person.
In 2017, the IRS noted that, if an account transcript includes a code 421 on an account transcript and the explanation “[C]losed examination of tax return,” then the IRS has closed its examination of the return, and this account transcript could serve as the functional equivalent of a Letter.
During the COVID-19 Pandemic, the IRS is now issuing Letters to an authorized person only upon request via fax.
In light of the above, the resource constraints and the issuance of Letters as a convenience, the IRS identified this area as one where a user fee should be imposed to recover the costs the government incurs in providing such Letter. The Notice proposes to establish a user fee of $67. The Notice goes on to describe in agonizing detail how the $67 is calculated.
ADVICE: The Notice does NOT give guidance on the procedure for the request of a Letter. Keep alert to such guidance. Unfortunately, this user fee is the start of a slippery slope to higher fees in the futures. As an example, the fee to request a Private Letter Ruling can cost a taxpayer as little as $275 and as much as $38,000. Such fee does not include the legal or accounting fees to prepare the request.
WORD OF THE WEEK: Account transcripts reflect transactions, including the acceptance of Form 706 and the completion of an examination, and, as discussed above, may be an acceptable substitute for the Letter. Account transcripts are available online to registered tax professionals using the Transcript Delivery System (TDS) or to authorized representatives making requests using Form 4506-T.
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